Korean institutions to invest $600 mn in two US gas power plants

  • 2017-01-23

The recently-closed financing for two US natural gas-fired power plants under construction have attracted a group of South Korean institutional investors for a total of $600 million, with higher US rates pushing up their expected returns from infrastructure projects.

South Korea’s National Agriculture Cooperative Federation and its brokerage and insurance units signed an agreement on Jan. 19 to invest a combined $200 million in Cricket Valley Energy Center, a 1,100 MW combined cycle natural gas-fired power generating facility in Dover, New York, according to investment banking sources on Jan. 20.

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In detail, the agricultural cooperative and NH Investment & Securities Co. Ltd. will invest in equity stakes in the energy project for a target return of over 15% a year. Nonghyup Life Insurance Co. Ltd., the unit of the cooperative, will invest in mezzanine debt of the facility for a target return of 8% a year. A breakdown of their investment was not provided.

The Industrial Bank of Korea will also provide $200 million worth of senior loans to the $1.7 billion project at an interest rate of 4.5% a year. BlackRock has a 10% stake in the facility which will be built by 2018. Other investors include the Teachers Insurance and Annuity Association of America (TIAA), Industrial and Commercial Bank of China, Japan’s Chubu Electric Power, and GE Energy Financial Services.

Cricket Valley Energy Center will supply electricity to 1 million households in Manhattan and Long Island in the state of New York, replacing old nuclear power plants which will be shut down by around 2020.

Separately, Hana Financial Investment Co. Ltd., a South Korean brokerage company, had lent $200 million in senior loans to Lackawanna Energy Center in Pennsylvania at a fixed rate of 5% for seven years. The energy center is a 1,485 MW gas-fired combined cycle power plant being constructed in the Borough of Jessup, Lackawanna County.

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“The 5%-level annual fixed rate of senior debt of the Lackawanna project is the yield which cannot be achieved from domestic alternative investments at all,” a Hana Financial source told the Korea Economic Daily.

Owners of the Lackawanna facility, to be built by 2018, had completed $1 billion debt financing last month. They also secured financing from BNP Paribas, GE Energy Financial Services, MUHG, ING Capital and Prudential Investment Management Services LLC.

The Lackawanna plant will deliver power to the Pennsylvania-New Jersey-Maryland (PJM) energy market, the largest US power market.

Both NH Investment and Hana Financial plan to sell down their interests in the two energy projects to domestic institutions in the form of structured products.

The raft of recent investment in US power projects followed the US Clean Power Plan of the former president Barack Obama aimed at curbing carbon emissions. Under the plan, aged nuclear and coal power plants will be phased out and replaced with natural gas-fired plants.

Now Donald Trump is expected to lift restrictions on American energy and support infrastructure projects as he had pledged during election campaigning, US energy infrastructure is expected to remain one of the most chased asset classes for institutional investors.

Last year Starwood Energy Group, a US private equity firm, raised $200 million from Korean institutional investors to fund its $760 million acquisition of power plants in Pennsylvania.

Newark Energy Center in New Jersey also had secured $320 million financing from Korean institutions in 2016.

By JiHoon Lee and Daehun Kim

lizi@hankyung.com

<Edited by Yeonhee Kim>